If your business invoices other businesses and then waits 30, 60, or 90 days to get paid, your cash can be stuck on paper while bills come due now. Invoice factoring unlocks that cash: you sell your unpaid invoices to a factoring company, which advances you most of the value immediately.
How invoice factoring works
- You deliver your product or service and issue an invoice as usual.
- You sell that invoice to a factoring company, which advances you a large portion of its value up front.
- The factoring company collects payment from your customer when the invoice comes due.
- Once paid, they send you the remainder, minus their fee.
Because the factoring company is essentially buying your receivable, approval depends heavily on your customers’ creditworthiness — not just yours. That’s why factoring can work for newer businesses that have strong, reliable customers but a short credit history.
Factoring vs. invoice financing
People use these terms loosely, but there’s a real difference:
- Invoice factoring: you sell the invoices; the factoring company usually takes over collections and deals with your customers directly.
- Invoice financing: you borrow against the invoices but keep ownership and continue collecting yourself — your customers may never know.
If you’d rather your customers not interact with a third party, invoice financing keeps collections in-house.
Recourse vs. non-recourse
In recourse factoring, you’re on the hook if your customer never pays. In non-recourse factoring, the factor absorbs certain non-payment risk — usually for a higher fee. Always read which type you’re signing up for.
What factoring is good for
- B2B businesses with net-30/60/90 invoices and slow-paying customers
- Industries where cash is routinely tied up in receivables (staffing, trucking, wholesale, services)
- Bridging cash flow without taking on a traditional loan
It’s generally not a fit if you sell directly to consumers (no business invoices to factor) or if your need is a one-time purchase — a term loan or working capital financing may suit better.
What it costs (in plain terms)
Factoring is priced as a fee on the invoice value (sometimes rising the longer the invoice stays unpaid), plus the advance rate that determines how much you get up front. Because pricing varies widely by provider, industry, and your customers’ credit, always get the full fee structure in writing and confirm it directly — we don’t publish numbers that go stale.
How to compare and apply
Some lenders and marketplaces offer factoring or invoice financing alongside other products, so you can compare options from one place.
Providers that offer or match invoice-based financing. Listed alphabetically — not ranked.
| Provider | Type | Often suits | Visit |
|---|---|---|---|
| Fora Financial Working-capital financing for businesses with revenue but thinner credit history. | Online lender | Fast working capital | Visit Fora Financial (opens in a new tab) |
| Lendio A free marketplace that matches one application to 75+ small-business lenders. | Marketplace | Comparing many lenders at once | Visit Lendio (opens in a new tab) |
The bottom line
Invoice factoring is a focused tool: it frees cash trapped in unpaid B2B invoices, with approval resting largely on your customers’ credit. Decide whether you want to hand off collections (factoring) or keep them (financing), read the recourse terms, and confirm the full fee structure before committing.
Frequently asked questions
- What is invoice factoring?
- Invoice factoring is when you sell your unpaid invoices to a factoring company at a discount. They advance you most of the invoice value right away, then collect from your customer and pay you the rest minus their fee. It converts receivables into immediate cash.
- What's the difference between invoice factoring and invoice financing?
- With factoring, you sell the invoices and the factoring company usually collects from your customers. With invoice financing, you borrow against your invoices but keep ownership and continue collecting yourself. Factoring hands off collections; financing keeps them in-house.
- Is invoice factoring a loan?
- Not exactly — it's the sale of an asset (your invoices) rather than a loan, so approval leans on your customers' creditworthiness more than your own. That can make it accessible to newer businesses with solid customers.
Sources
Loan programs, rates, and eligibility change. We re-check sources on the “updated” date, but always confirm current terms directly with a provider.